This will be a quick post. I’m running on fumes, and will be for at least another month. (Then a brief respite, with serious fume-running to follow after August. But for excellent reasons!) That said, there are two things happening in the Argentine gas fields, which are related to the YPF expropriation saga and time-sensitive. So read on!
First, you can expect the Argentine government to announce in the next few days about $20.3 billion dollars in new shale gas investments in the Vaca Muerta fields. Eleven different companies — Chevron, ConocoPhillips, Ecopetrol, EOG, ExxonMobil, Shell, Sinopec, Statoil, Talisman, Vale do Río Doce, and Venoco — are supposed to drill more than 12,000 wells in an area covering 2,400 square miles. For reasons unknown to me, the traditional comparison seems to be Rhode Island: that’s an area twice the size of said state. (It’s also roughly eight New York Cities.) The biggest investors are ConocoPhillips and Talisman, who will jointly put in about $4.3 billion. Together, the projects are expected to produce 11 mcf per day, which is roughly what Argentina currently imports.
The companies are negotiating the deals with the government. YPF, the newly nationalized company, owns roughly 40% of the 12,000 square miles covered by Vaca Muerta. It will be a majority partner in the new fields. So, negotiations with provincial governments, the federal government, and the federally-owned YPF. But ... the companies are also negotiating with Repsol. Directly. Even though Repsol now is only a tiny minority partner in YPF. Which brings us to development #2.
Second, Repsol is suing Argentina in New York. It has now declared that it is looking for punitive damages. On one hand, this makes little sense. American judges will have little reason to bring action against the country unless and until there is an adverse ICSID judgment. But when you look at through the eyes of some unnamed French oil executives, who are willing to explain why they would have done the same thing, the strategy becomes clear.
Their explanation? The lawsuits aren’t aimed at YPF or the Argentine government. They are aimed at anyone who might want to do business with YPF or the Argentine government ... because they will be wandering into a legal minefield. And if they (including even Sinopec) do business in the United States, that is something that they would seriously want to avoid.
Thus ... negotiations with a company that technically no longer controls its Argentine assets, and owns only a 5% stake.
Yes, it is legal terrorism. It is fighting dirty. But heck, it makes for fun watching.
ADDENDUM: The lawsuit will also make it almost impossible for the nationalized YPF to raise funds in the United States. Considering the mess that Argentina is in regarding foreign exchange, that is going to be a serious problem. The Argentine government may not need foreign financing to fund its activities, but the businesses and people resident in Argentina increasingly do. Thus, capital controls ... and a headache for YPF if it cannot borrow in hard currency.